Gsk Plc · LSE:GSK
Gsk — GlaxoSmithKline — FY2009 Earnings Presentation
52 slides from Gsk's earnings presentation, Feb 4, 2010
Slide 1: Q4 Results 2009 Presentation to Investors & Analysts
Q4 Results 2009 Presentation to Investors & Analysts 4th February 2010 1
Slide 2: Andrew Witty, Chief Executive Officer
Andrew Witty Chief Executive Officer 2
Slide 3: GSK strategy is delivering
GSK strategy is delivering 2009 return to sales growth…with an increasingly diverse portfolio Rx/Cx sales in “Emerging mkts”1 Proportion of sales from white 21% of GSK sales pill/western markets reduced from £5.9bn +16% 40% to <30% Measures in place to manage cost New product momentum and effectivel
Slide 4: Return to sales growth with a more diversified portfolio
Return to sales growth… with a more diversified portfolio Prophylactic Growth from new portfolio: vaccines Boostrix +73%, Rotarix +50%, Cervarix +38%; Synflorix launch £73m Therapeutic Pandemic vaccine £883m vaccines Biopharm portfolio building: • Arzerra launched • Prolia positive opinion Biopharm
Slide 5: Diversification through bolt-on acquisitions and partnerships
Continued focus on diversification through bolt-on acquisitions and partnerships 11 deals completed across the business in 2009 Emerging Markets Pakistan Near EM/AP East Pharma Vaccines Consumer Walvax AZ Tika Uni-President (Lucozade in China), Walvax (Priorix in China), Neptunus (flu in China), AZ
Slide 6: Maximising the potential of Stiefel acquisition
Maximising the potential of Stiefel acquisition Globalisation Integration and cost reduction Preparing Stiefel products for Fully integrated in <6 months global launch 2010-12 $23m cost synergies in ’09; Focus on Europe, Asia and EM >$150m in 2010 Duac; Physiogel and foam Closure of 5/6 factories #1
Slide 7: Principles for capital allocation across GSK
Principles for capital allocation across GSK Low cost, Invest for high quality growth manufacturing Better capital allocation Cost reduction Simplification Reduce R&D earns its non-customer investment facing spend 7
Slide 8: R&D strategy focused on quality, novelty and cost-efficiency
R&D strategy focused on continuously improving quality, novelty and cost-efficiency Focus on the best Re-personalise science R&D Diversify through Focus on return externalisation on investment 8
Slide 9: New products contributed £1.3bn in 2009 (+55%)
New products contributed £1.3bn in 2009 (+55%) £2.1bn incl. pandemic vaccine Hiberix Pandemrix US US 2007 2008 2009 Sales from 2007-09 launches; CER growth rates 9
Slide 10: Potential for 6 new product launches in next 18 months
….with potential for 6 new product launches in next 18 months Menhibrix Prolia Horizant Nimenrix Benlysta retigabine 2007 2008 2009 2010/11 10
Slide 11: Sustained momentum through the clinical pipeline
Sustained momentum through the clinical pipeline 12 Approvals 0 3 6 9 12 15 11 Filings 0 3 6 9 12 15 28 Key Ph III/reg 0 8 16 24 32 40 5 Phase III starts 0 2 4 6 8 10 22 First time in human 0 5 10 15 20 25 11
Slide 12: Five levers to improve returns in pharma R&D
Five levers to improve returns in pharma R&D Shift R&D spend Increase Discovery2 Grow biopharm Number of Discovery projects originating from from early to late1 externalisation pipeline 60% 80 20 Number of biopharm projects 70 external sources % R&D late‐stage spend 60 15 50 50% 40 10 30 20 5 10 40%
Slide 13: Externalisation through options-based deals
Continued focus on externalisation through options-based deals More than 80 active projects from 47 external engines 13 new partnerships since Feb 09 Tempero Pharmaceuticals Alveonix UCL Institute of Pentraxin Therapeutics Ophthalmology 13
Slide 14: Driving efficiencies through clinical development
Driving efficiencies through clinical development Number of sites recruiting zero patients reduced from 29% to 19% (2006 to 2009) Number of patients per site has increased 30% from 5 to 6.2 (2006 to 2009) Over $120m saved by reducing clinical trial supply overages (cumulative from 2006) Clinical stu
Slide 15: Additional actions to improve return on R&D investment
Announcing additional actions to improve return on R&D investment ~1/3 of R&D Proposed cessation of spend is fixed selected Neuroscience infrastructure research reduces both fixed and flexible spend Significant infrastructure reduction Differential Savings of ~£250m by 2012 Risk risk-return 70% of s
Slide 16: Committed to improving returns in R&D
Committed to improving returns in R&D R&D returns over the last decade Our estimates for GSK’s Our goal is to improve this return have been disappointing1 late-stage portfolio2 by 25% via our R&D strategy 15% 15% 15% 10% 10% 10% IRR 5% 5% 5% 0% 0% 0% 1. McKinsey, Nature Reviews, Drug Discovery (Aug
Slide 17: Principles for capital allocation across GSK
Principles for capital allocation across GSK Low cost, Invest for high quality growth manufacturing Better capital allocation Cost reduction Simplification Reduce R&D earns its non-customer investment facing spend 17
Slide 18: Investing SG&A to support key growth businesses
Investing SG&A to support key growth businesses Increased portion of spend outside More Pharma reps in Emerging Markets US & EU Pharma & Asia Pac/Japan than in US + Europe 42% 48% 53% 29% 26% 23% 29% 26% 24% SG&A spend in Emerging markets, Asia Pac/Japan and Consumer Excludes legal Overall SG&A as %
Slide 19: Increasing returns on Consumer A&P investment
Increasing returns on Consumer A&P investment Adverts are increasingly highly rated Cost savings in Consumer reinvested and investment allows access to new in A&P channels £m 83% in top 20% Incremental Advertising* Savings • Incremental Base Business Advertising (excludes alli & CNS) • Savings at re
Slide 20: Sales force expansion and increased A&P in Emerging markets
Focus on sales force expansion and increased A&P in Emerging markets 31% increase in SG&A spend in ~2,500 new reps added in 2 years Emerging markets ’09 vs ’08 (CER) 1,600 added in 2009 • “Go deeper, go wider” in China % SG&A (excl. legal) spent in EM • ~600 reps added in 2009 • 37 additional cities
Slide 21: Targeting significant G&A / infrastructure reductions
Targeting significant G&A / infrastructure reductions • Support functions account for ~£2bn Over the next 5 years…. annual spend; highly fragmented across the business • GSK proposes to exit ~11 million square feet, ~13% of the total GSK • Target 20% reduction by end 2011 real estate portfolio • Cre
Slide 22: Principles for capital allocation across GSK
Principles for capital allocation across GSK Low cost, Invest for high quality growth manufacturing Better capital allocation Cost reduction Simplification Reduce R&D earns its non-customer investment facing spend 22
Slide 23: Global Manufacturing & Supply today
Global Manufacturing & Supply today 79 sites 33 countries 29,000 people 1,350 brands > 150 contract manufacturers > 4bn packs / year Excludes vaccines 23
Slide 24: Significant progress to increase efficiency already made
Significant progress to increase efficiency already made Network reduction & increased Advair cost of goods ~ halved productivity in 10 years Sites Sales / FTE down 31% £000 up ~80% Volumes increased 12 fold 140 900 Output per operator increased 6 fold 800 120 700 100 600 COGs indexed to 1999 80 500
Slide 25: Guaranteeing rapid product introduction & secure supply
Guaranteeing rapid product introduction & secure supply NPI & GROWTH PHASE Patent Expiry Mature Products New Product Introduction & Growth Dual Source Post-mature Transfer Transfer • API mfg – a strategic capability • Co-locate development and launch • “Quality by Design” (Votrient) API = active pha
Slide 26: Rapid product introduction while maximising out-sourcing
Guaranteeing rapid product introduction & secure supply...whilst maximising out-sourcing opportunities NPI & GROWTH PHASE MATURE PHASE LATE LIFECYCLE Patent Expiry Mature Products New Product Introduction & Growth Dual Source Post-mature Transfer Transfer • API to low cost partners • Majority of API
Slide 27: Valtrex – ensuring minimal fixed costs post generics
Valtrex – ensuring minimal fixed costs post generics NPI & GROWTH PHASE MATURE PHASE LATE LIFECYCLE Patent Expiry Mature Products New Product Introduction & Growth Dual Source Post-mature Transfer Transfer • Launch in 1999 • 2006: API <60% of launch cost • 2010: API <40% of launch cost • 100% API mf
Slide 28: Balancing opposing drivers of operating margin
Balancing opposing drivers of operating margin • Increased growth and • Comprehensive expansion of lower programme to reduce margin businesses cost and increase • Loss of high margin productivity products to generics • Reallocation of spend from traditional businesses 28
Slide 29: 2010: Prospects are improving
2010: Prospects are improving GSK has returned to sales growth in 2009 Effective cost control in place to stabilise operating margin R&D model is working and new product flow is improving Actions ongoing to improve returns in R&D Continued focus on cashflow & shareholder returns 29
Slide 30: Julian Heslop, Chief Financial Officer
Julian Heslop Chief Financial Officer 30
Slide 31: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Turnover 28,368 24,352 3 16 EPS 121.2p 104.7p 2 16 Free Cash Flow 5,254 4,679 12 2009 EPS includes: - a gain on formation of ViiV of £296m (+4.2p); and, - total legal charges in 2009 and in Q4 ’09 of £591m and £392m,
Slide 32: 2009 Turnover summary
Before 2009 Turnover summary restructuring costs 2009 2008 % Change £m £m CER £ Pharmaceuticals 23,714 20,381 2 16 Consumer 4,654 3,971 7 17 Total 28,368 24,352 3 16 32
Slide 33: Turnover growth despite decline in US Pharma
Turnover growth despite decline in US Pharma +7% -13% +19% Consumer £4.7bn US growth rate impacted by Rest of losses to generics Pharma +22% £2.2bn Japan Ph US £1.6bn Pharma £9.2bn Emerging Markets Ph +20% £3.0bn Europe Pharma £7.7bn +9% 2009 Turnover £28.4bn (+3%) CER growth rates Rest of Pharma in
Slide 34: Pharmaceuticals turnover analysis
Pharmaceuticals turnover analysis 2009 2008 % Change £m £m CER Core* 19,060 15,992 +5% Influenza** 1,814 338 >100% Core + influenza 20,874 16,330 +12% Avandia 771 805 -16% Products impacted by generics*** 2,069 3,246 -45% Total 23,714 20,381 +2% * Core includes £378m related to 2009 bolt-on acquisit
Slide 35: 2009 Pharmaceuticals key growth drivers
2009 Pharmaceuticals key growth drivers Advair £4,977m +5% Vaccines* £3,706m +30% Relenza £720m >100% Epzicom £546m +8% Avodart £530m +16% Ventolin £477m +26% Lovaza £450m +31% Arixtra £254m +29% Tykerb £169m +45% Veramyst £142m +72% Subtotal £11,971m +23% All others £8,903m +1% * Includes H1N1 sale
Slide 36: New Products ('07 - '09 launches)
New Products (’07 - ’09 launches) H1N1 LAMICTAL XR & ODT 2009 total sales: £2,145m >100% Excluding pandemic vaccines: £1,262m +55% CER growth rates. 36
Slide 37: 2009 Consumer Healthcare turnover
2009 Consumer Healthcare turnover Lucozade £376m -3% Panadol Nutritional £393m +10% Healthcare £0.9bn (+3%) Aquafresh £496m -1% OTC Medicines Oral £2.3bn (+8%) Healthcare £1.5bn (+7%) Sensodyne alli £457m +13% £203m >100% £4.7bn +7% CER growth rates 37
Slide 38: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Turnover 28,368 24,352 3 16 Cost of goods (7,095) (5,776) 13 23 25.0% 23.7% % in italics are % of turnover 38
Slide 39: 2009 Cost of goods analysis
Before 2009 Cost of goods analysis restructuring costs Cost of goods sold as % of turnover +0.6% -0.6% +0.1% +1.2% 25.0% 23.7% 2008 Generic Regional / OE savings Other 2009 competition Product mix US and EU 39
Slide 40: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Turnover 28,368 24,352 3 16 Cost of goods (7,095) (5,776) 13 23 25.0% 23.7% SG&A: Core (8,609) (6,741) 8 28 30.3% 27.7% Legal costs (591) (611) (18) (3) Total SG&A (9,200) (7,352) 6 25 32.4% 30.2% % in italics are % o
Slide 41: 2009 SG&A analysis excl. legal
Before 2009 SG&A analysis excl. legal restructuring costs SG&A excluding legal as % of turnover +0.7% +1.2% +0.5% 30.3% -1.4% +1.6% 27.7% 2008 OE Savings Investment Stiefel / HIV Exchange Pensions / 2009 markets Gains / Other Losses 41
Slide 42: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Turnover 28,368 24,352 3 16 Cost of goods (7,095) (5,776) 13 23 25.0% 23.7% SG&A (9,200) (7,352) 6 25 32.4% 30.2% R&D (3,951) (3,506) 2 13 13.9% 14.4% Other oper. income 1,135 541 Operating profit 9,257 8,259 (1) 12 3
Slide 43: Other operating income £1,135m
Other operating income £1,135m Formation of ViiV Equity disposals & other Product & £541m IP divestments Royalties & milestones Impairments 2009 2008 43
Slide 44: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Operating profit 9,257 8,259 (1) 12 Interest (710) (525) 25 35 Profit of disposal of 115 - - - interest in associate Share of associate 64 48 13 33 and JV profits Profit before tax 8,726 7,782 (1) 12 44
Slide 45: 2009 Performance summary
Before 2009 Performance summary restructuring costs 2009 2008 % Change £m £m CER £ Profit before tax 8,726 7,782 (1) 12 Tax rate 28.0% 28.7% Profit after tax 6,283 5,551 - 13 Minority interests 138 110 12 25 Earnings 6,145 5,441 - 13 EPS 121.2p 104.7p 2 16 45
Slide 46: Full year results after restructuring
Full year results after restructuring 2009 2008 Results before Total Total restructuring Restructuring results results £m £m £m £m Turnover 28,368 - 28,368 24,352 Operating 9,257 (832) 8,425 7,141 profit EPS 121.2p (12.1)p 109.1p 88.6p 46
Slide 47: Free cash flow
Free cash flow 2009 2008 £m £m Total operating profit 8,425 7,141 Depreciation & other non-cash items 1,271 1,437 (Increase) / decr. in working capital (106) 69 (Decrease) / incr. in other net liabilities (45) 408 Cash generated from operations 9,545 9,055 Taxation paid (1,704) (1,850) Capital expen
Slide 48: Free cash flow to net debt reconciliation
Free cash flow to net debt reconciliation 2009 2008 £m £m Free cash flow 5,254 4,679 Dividends (3,003) (2,929) Share repurchases - (3,706) Acquisitions (2,792) (454) Disposal of interest in associate 178 - Exchange and other movements 1,041 (1,918) Other 51 194 Net decrease (increase) in debt 729 (4
Slide 49: Incremental restructuring programme
Incremental restructuring programme Phasing of £900m charges Total savings £500m annually R&D SG&A £600m £500m £350m £250m £150m £50m 2010 2011 2012 2010 2011 2012 Charges and savings presented on a pre-tax basis. Approximately 30% of incremental restructuring charges will be asset write-downs. 49
Slide 50: Conclusion
Conclusion • 2009 sales growth of 3% (CER) • Significant pandemic related sales expected in 1H10 • Additional restructuring will deliver significant savings (£500m by 2012; ~30% to be reinvested) • Strong cash generation continued in ’09 with free cash flow of £5.3bn (+12%) • Dividend growth continu
Slide 51: GlaxoSmithKline
GlaxoSmithKline
Slide 52: Reference Slide: Methodology to estimate the IRR of late-stage pipeline
Reference Slide: Methodology to estimate the IRR of GSK R&D’s late-stage pipeline Estimated Sales R&D Costs • Late-stage pipeline includes pharma NCEs and • R&D costs associated with the development of our current late-stage pipeline projects vaccines launched from 2007 onwards plus current are incl